Xavier Gabaix on The Shape of Big Things

Firm and city size distributions follow universal power laws from random growth, implying large firm concentration is typically earned, not anticompetitive.

• Zipf's Law explained: Gabaix's 1999 QJE paper shows random proportional growth with a lower-bound friction (e.g., cities can't fall below ~50 inhabitants) generates the universal pattern where the nth largest city is ~1/n the size of the largest.
• CEO pay scales with firm size: Gabaix and Landier (2008) show competitive assignment of talent to firms means a 6x rise in average firm size (1980-2000) mechanically produces a 6x rise in CEO pay, independent of rent-seeking.

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